As one of the fastest growing economies in the world—with average annual GDP growth of 7.2% of during the decade prior to the FY08-09 economic slowdown—Vietnam has lifted some 35 million people out of poverty.

As one of the fastest growing economies in the world—with average annual GDP growth of 7.2% of during the decade prior to the FY08-09 economic slowdown—Vietnam has lifted some 35 million people out of poverty. Vietnam’s poverty rate fell from 58% in 1993 to 14% in 2008. The results from the Bank’s Vietnam development support program have been outstanding (based on the Bank's Independent Evaluation Group (IEG) evaluations of 34 completed projects, Vietnam has maintained its record of 100% of projects having been rated satisfactory). The country has made substantive progress in adopting market-oriented reforms and its aim to achieve middle-income status (defined by the Bank as countries with a per capita income of US$1,000) is well within sight. In 2009, Vietnam transitioned from an IDA to an IBRD blend country.

 

Challenge

The recent global economic crisis slowed the trajectory in Vietnam’s short term growth, but the government expects growth to rebound to 6.5% in 2010. While a stimulus package helped cushion the shock, new challenges emerge as the economy becomes more sophisticated and globally integrated. Institutional reforms are necessary to ensure the country’s large development agenda meets its objectives of inclusive and sustainable growth.

Additional efforts are required to address the remaining pockets of poverty, with many of the poor living in remote mountainous areas and belonging to ethnic minority groups.

The sustainability of Vietnam’s growth will also be challenging, given increasing pressures on the country’s natural resource base, the exposure of large segments of the population to natural disaster risks, and the expected (adverse) impacts of climate change.

Approach

The World Bank’s country program is fully aligned with the Government’s Five Year Socio-Economic Development Plan 2006-2010, focusing on:

• improving the business environment
• strengthening social inclusion
• strengthening natural resource and environmental management
• improving governance

At Government’s request, the Bank’s financing of infrastructure investments has been scaled up during FY10-FY11, with planned lending of US$1.8 billion for energy, transport, and urban development, an increase of 25% over the volume of such support during the previous three FYs combined. At the end of FY09, the portfolio had 47 operations and total commitments of US$5.5 billion.

Of this, IBRD commitments of up to US$750 million include two development policy loans (DPL) to support reforms in public investments and the power sector. Strengthening the selection, preparation, implementation, and supervision of public investment projects is essential to modernizing governance. The second DPL will restructure the power market, making it more competitive and improving energy efficiency and sustainability. In addition, the World Bank co-chairs the Consultative Group meetings which this year resulted in a record pledge of US$8 billion in development assistance.

Results

Access to rural credit services has improved significantly. Over the past decade, a growing number of rural households gained access to credit—for farming and small business activities—for the first time. The Bank’s First and Second Vietnam Rural Finance projects contributed to this trend as well as to the strengthening of several rural financial institutions. The second project financed more than 400,000 sub-projects, leveraging total investments equivalent to US$740 million and generating new sources of employment.

Water supply and sanitation facilities have expanded. Urban water supply has doubled in small towns to 60% between 2006 and 2009 and is up from 75% to 95% in cities for the same period. Rural access to clean water has seen an increase from 36% to 70% between 1999 and 2009. The World Bank has helped to support this development through investments in rural water and sanitation in the Red River Delta Region and through innovative programs such as the Global Output-Based Aid funded project in partnership with the East Meets West Foundation.

About 80% of urban households have sanitation but currently most use septic tanks and very little waste is treated. The World Bank is supporting the development of sanitation systems in several cities, including financing some of the country's first wastewater treatment plants, including in coastal cities such as in the World Heritage site of Ha Long Bay, and the important urban centers of Da Nang and Hai Phong. Urban sanitation remains a priority area for support in the urban sector.

Electricity now reaches 95% of the population. Every day for the past ten years, 9,000 people have been connected to the grid for the first time in Vietnam. The country doubled its power generation capacity from 12,000 MW in 2005 to 25,000 MW in 2010. Under the Second Rural Energy Project, over 2.7 million people in some of the poorest parts of Vietnam gained access to electricity as 555,327 households were connected to the national grid.

Over 90% of the population is now connected by all-weather roads. Working in 33 provinces, the Third Rural Transport project is reaching some of the most difficult mountainous regions of Northern Vietnam, linking poor and marginalized communities to better markets and services. Averaging 4.5% of GDP investment, Vietnam is the leading investor in Asia in its roads infrastructure to make space for the economy to grow, allow cities to move, and lift the remaining population out of poverty.

95% of motorcycle riders now wear a helmet. With 6.5 fatalities per 10,000 vehicles/year, over six times those in Japan, accidents on Vietnam’s roads is a major contributing factor to a national injury crisis. Addressing one of the highest accident rates in the world, the Vietnam Road Safety Project is working to bring health, education, police, and highway agencies together to save lives.

Improving living standards in remote mountainous areas. Under the first Northern Mountains Poverty Reduction Project, 353,871 households have benefitted from improved health care, and over 118,000 households have access to clean water, significantly improving the health of local people. A follow-on project will build on these earlier gains plus strengthen community disaster risk preparedness and pilot market linkage service initiatives.

Improving access to health services. A Bank-supported health insurance program for the poor is on track to increase coverage from 28% in 2004 to 55% in 2010. The Bank has also supported the creation of the country’s first blood banks.

Primary education doubled and more disadvantaged children were enrolled. The proportion of primary students in full day programs doubled from 25% in 2005 to 50% nationwide. Children in disadvantaged districts increased enrollment to 94% (compared to 97% nationally) while girls enrollment in secondary school now exceeds boys at 78% to 77%.

Women rights to land titles increased. Following the success of two World Bank-supported pilot projects in the early 2000s, the government passed a Land Law making it mandatory for all land titles to be issued jointly in the names of husbands and wives. The Bank-supported Vietnam Land Administration Project aims to issue some 5 million (jointly held) land titles over the next three years.

Toward the Future

The next few years will be critical for Vietnam in completing the transition to a market economy and creating the foundations of a middle income country. Whether those foundations will be strong enough to ensure inclusive and sustainable growth will depend in part on investment and policy decisions to be made in the coming years. The Bank will continue to provide its support. For instance, the new US$312 million DPL will help restructure the power sector while four other IDA credits approved by the Board on April 6, 2010, will fund health care, infrastructure development, local development planning capacities, and market linkages in and from traditionally vulnerable areas of Northern Vietnam, the Red River Delta and the rapidly urbanizing Ho Chi Minh City.